The Economic Times
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| 11 August, 2020, 09:07 PM IST | E-Paper

    Fund Basics

    Money market mutual funds, as the name suggests, invest mostly in money market instruments. As per Sebi norms, these schemes must invest in money market instruments with maturity of up to one year.

    When we talk about mutual funds, we normally talk about open-ended funds or schemes. An open-ended scheme is available to buy and sell all the time. You can buy and sell the units of the scheme based on its NAV.​

    A Fund of Funds or FoF invests in mutual fund schemes. A regular mutual fund scheme or fund collects money from investors and invest the money in stocks or debt based on its mandate.

    Index funds, as the name suggests, invest in an index. They invest in stocks that constitute the index in the same proportion. The whole idea is to mimic the index. Why?

    What is an equity mutual fund?

    An equity mutual fund invests mostly in equity or stocks. In India, a mutual fund scheme must invest at least 65% of its corpus in Indian stocks or equity and equity-related investments to be treated as an equity mutual fund for the purpose of taxation.

    Before the Sebi categorisation and rationalisation of mutual fund schemes in October 2017, most investors and advisors used to refer to equity-oriented hybrid schemes as balanced schemes.

    Debt mutual funds have to show notional losses or gains on their debt holdings even if the gains or losses are not actually realised. This is known as markto-market or MTM risk.

    Gilt funds are debt funds that invest in government securities. The government bonds used to be issued in golden-edged certificates. The nickname gilt comes from gilded edge certificates.

    Debt mutual funds invest in fixed income securities like bonds, government securities, Treasury bills, among others.

    What is tracking error?

    In index funds, tracking error cannot be zero due to expense ratio, cash flows of the fund and realigning the portfolio when index composition changes.

    Surprisingly, most of these ULIP owners believe they have invested in a mutual fund scheme. Most often they are surprised when we point it out to them that they have bought an insurance product, and we will not be able to offer a detailed response because we run a mutual fund forum.

    You would wonder why anyone would care for a primer on mutual funds when every investor in the country knows that 'Mutual Funds Sahi Hai'.

    Tax saving schemes are mutual fund schemes that qualify for tax deductions under Section 80C of the Income Tax Act.

    The net asset value of a mutual fund is the price you pay for a unit of a scheme.

    Investment options for a retiree to generate regular income

    Most retirees look for guaranteed, tax-free returns. Once they find out that there are not many tax-free avenues, the next one is to look for guaranteed returns.

    It is true that many actively-managed large cap schemes struggled in the last two years, whereas their passively-managed counterparts topped the return charts.

    To stop MF SIP, investors can log in to the mutual fund website using login credentials or folio details. Else, the investor can also login to the online transaction platform of the R&T agent or the distributor and click on ongoing SIP instructions.

    Debt funds invest in fixed income securities such as bonds and deposits issued by the government, companies and institutions which typically pay a fixed amount of interest at a prespecified rate and frequency.

    With increased data and development in machine learning and AI, quant funds can become groundbreaking in years to come. In India there are a few fund houses offering quant funds like Tata, Nippon and DSP.

    How to invest in liquid mutual funds

    To be able to invest in a liquid fund, the investor should have KYC formalities completed with a KYC registration agency. A KYC form needs to be filled up and documents (address and IDproof) should be submitted, with originals for this purpose.

    The Economic Times